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Navigating Through
the
Audit Process
Schools and Libraries Training
September and October 2008
Audits:
Documentation
Document Retention
Requirements
• Applicants and service providers must maintain program
documentation for a period of at least five (5) years from last date
of service.
• All applicants and service providers are required to retain:
– receipt and delivery records relating to the technology plans
– pre-bidding
– bidding
– contracts
– application process
– invoices (financial and E-rate Form 472/474)
– provision of services, and other matters relating to the
administration of the Universal Service Fund
Example
• For example, if a service provider
provides Internet access to an applicant
for Funding Year 2005 (July 1, 2005 -
June 30, 2006), both the applicant and
the service provider must retain all
records on this transaction until at least
June 30, 2011.
Why Conduct
Audits?
• Ensure compliance with FCC Rules.
• Recover funds for rule violations.
• Ensure equitable contributions to USF
(recoveries lower contribution factor).
• Prevent, detect and deter waste, fraud,
and abuse.
• Ensure public confidence in the efficiency
of the federal universal service programs.
• Required by law
5
Types
of Audits
USAC Internal Audit Division (IAD) Audit
• Performance Audit
FCC OIG IPIA Audits
6
IPIA Round
1 Results
• Causes of improper payments:
– Lack of documentation.
• Most often occurred with respect to invoices
supporting reimbursement forms.
• Also included documentation supporting discount
calculation, contracts with service providers and
competitive bidding documents.
– In most cases, the lack of documentation resulted from
beneficiaries not maintaining files designed specifically
to support their E-rate requests.
7
IPIA Round 1
Results
• Causes of improper payments:
– Inadequate asset tracking systems.
• Beneficiaries did not maintain accurate inventory
records, therefore auditors could not account for
all funded equipment.
8
IPIA Round
1 Results
• Causes of improper payments cont.:
– Discount calculation discrepancies.
• For 20 % of the selected FRNs, the auditors noted
differences in the Block 4 numbers when compared to the
beneficiaries’ supporting documentation.
– These differences were mainly attributed to beneficiaries not
maintaining the actual source date used to complete Block 4.
Instead, the beneficiaries provided the auditors with data from
the same general time period.
– Funded services in ineligible locations.
• Services and equipment were funded for ineligible entities,
such as pre-K or juvenile justice in states where they are
not recognized as elementary or secondary schools.
9
The Audit
Process
• Announcement letter
– Phone call to answer questions and discuss site
visit.
• Documentation requests
– Documents received within 2 weeks of audit
announcement.
– Documents received at the time of site visit.
• Entrance Conference
– Formal discussion to introduce audit staff, audit
objectives, overview of the process, reporting and
timing.
10
The Audit
Process
• Field Work
– Site visits vary in length.
– Field work is performed both at the beneficiary site
and at auditor offices.
• Reporting
– Performance Audit
• Compliant, Generally Compliant, Not Compliant
• Detailed Audit Findings (DAFs)
• Other Matters
– Attestation Audit
• Unqualified, Qualified, Adverse, Disclaimer
• Audit Findings
• Management Letter
11
The Audit
Process
• Exit Conference
– Discuss audit findings in detail.
• Management Responses
– Beneficiary Response.
– USAC Management Response.
• Presentation to the Board
– Reports presented in open session at the
Schools and Libraries Committee.
• Final report sent to applicant.
12
SLD Post Audit
Follow-up
• Based on FCC Directive
• Email sent to beneficiary to follow-up on
audit findings
– Request for documentation.
• Auditor/USAC recommended procedures.
• Additional information related to the audit.
– Tip Sheet.
– Website Reference.
13
SLD Post Audit
Follow-up
• Non-compliance letters
– Sent for audits where conclusion is not compliant or
adverse.
– Request for documentation.
• Auditor/USAC recommended procedures.
• Additional information related to the audit issues.
– Sent to applicant, service provide or both.
– 6 months to respond.
• Funding is placed on hold until response is received.
• If no response is received, funding will be denied.
– S&L Audit response will contact beneficiary after 1
month to confirm receipt and answer questions.
14
Recoveries and
Appeals
• Auditees have 60 days to appeal
decisions made or actions taken by
USAC (47 C.F.R. §§ 54.719, 54.720).
15
Examples of rule
violations that
warrant recovery?
• Insufficient documentation of the competitive
bidding process.
• Lack of necessary resources.
• Service substitutions that would not meet criteria established
in the rules.
• Receipt of duplicative services.
• Failure to pay non-discounted share.
• Failure to complete service(s) within the funding year.
• Discount calculation violation.
• Services not provided for full funding year.
• Failure to have an approved technology plan.
16
It is important to know
who violated the rule
• USAC seeks recovery from the party or parties
in the best position to prevent the rule violation.
• USAC must determine whether the applicant,
service provider, or both are responsible for the
rule violation.
17
How does USAC determine
the responsible party?
• The FCC has laid out general guidelines which USAC
built into its procedures:
– Service Provider recovery situations:
• Failure to properly bill for supported services.
• Failure to deliver services within the relevant funding year.
• Delivering services that were not approved on FCC Form 471.
– School or Library recovery situations:
• Violation of the competitive bidding requirements.
• Insufficient resources to make use of the supported services.
• Incorrect calculation of the discount percentage.
• Failure to pay the non-discount portion.
• BEAR amount exceeds amount of invoices received from service
provider.
18
What is a
COMAD?
• A COMAD, or commitment adjustment, is where USAC
determines that funds were committed in violation of
program rules.
• When a COMAD is discovered, USAC must then adjust
those funding commitments.
• If the amount of the revised commitment (original
commitment less COMAD amount), is less than the
disbursed amount, then USAC will seek recovery of the
difference.
19
Examples of a
COMAD
• Funding approved for ineligible services.
• Funding approved at a discount rate higher than that which can be
supported.
• Funding for services requiring a tech plan, when no tech plan is in
place.
• Funding provided when the competitive bidding requirements have
not been met.
• USAC was invoiced in excess of the amount the applicant was
invoiced by the service provider
20
What is a
RIDF?
• A RIDF is where USAC discovers that funds were
disbursed in error, but the decision to commit the funds
was correct. USAC will seek recovery, however, the
commitment amount will not be adjusted.
• Once the RIDF has been repaid, SLD will pay any valid
invoices for the funding request.
21
Examples of a
RIDF
• Funds disbursed in excess of the services delivered.
• Funds disbursed for services not approved on FCC Form
471.
• Non-COMAD recoveries are generally discovered via the
audit process.
22
Navigating Through
the Audit Process
Section II
How to prepare
for an audit?
• Provide documentation in a timely manner.
– The efficiency of the audit will depend on the
availability of your staff and the condition of the
documentation made available prior to and/or during
the course of the audit.
• Ask questions to ensure you are providing adequate
documentation.
• Keep accurate and organized records.
– E-rate binder, organized by Funding Year.
• Maintain documents for 5 years after the last date to
receive service.
• DOCUMENT everything!
24
Eligibility
Documentation auditors may request
– Financial Statements
• Applicants may not have endowments exceeding $50 million.
– Non-profit status (primarily for private and charter schools) –
IRS not-for-profit determination letter.
• Schools and libraries operating as for-profit businesses are not
eligible for funding.
– For Head Start, Pre-K, Juvenile Justice and Adult Education
facilities – documentation from your state showing that these
facilities meet the definitions of elementary or secondary
schools.
25
Eligibility
Common findings
• USAC is invoiced for equipment or
services delivered to ineligible entities.
• Possible recommendation of recovery of funding
for equipment or services delivered to ineligible
entities.
26
Technology
Plans
Documentation auditors may request
– Copy of a draft plan dated prior to Form 470 submission.
• In the Fifth Report and Order, the FCC emphasized that applicants
are still expected to develop a technology plan prior to submitting
a 470.
• Must address the technologies requested on Forms 470.
• Must contain the five required elements.
– The plan must establish clear goals and a realistic strategy.
– The plan must have a professional development strategy.
– The plan must include an assessment of the telecommunication
services, hardware, software, and other services.
– The plan must provide a sufficient budget to acquire and support the
non-discounted elements of the plan.
– The plan must include an evaluation process that enables the school
or library to monitor progress toward the specified goals and make
mid-course corrections.
27
Technology
Plans
Documentation auditors may request
cont.
– Copy of final technology plan and approval
letter.
• In the Fifth Report and Order, the FCC amended
the rules to require that technology plans must be
approved prior to the start of services.
• Must address the technologies requested on
Forms 470.
• Must contain the five required elements.
– Copy or Copies of updated technology plans.
28
Technology
Plans
Common audit findings
– Technology plan did not contain the five required elements.
• Possible recommendation of full recovery of all funds disbursed
because application was not based on a bona fide request for
services.
– Technology plan approved after services have started.
• Possible recommendation of recovery of funds for time period
between start of services and technology plan approval.
– Technology plan does not address technologies requested on
Form(s) 470.
• Possible recommendation of recovery of funds disbursed for the
technology or technologies that were not addressed in the
technology plan.
29
Technology
Plans
Technology plan best practices
– The five required elements are clearly laid out in the
technology plan.
– All technologies that are requested on Form(s) 470
are addressed in the technology plan.
– Technology plans are approved prior to the start of
services.
– Technology plan is approved by a SLD or FCC
certified technology plan approver.
• Can be located on USAC’s website at:
http://www.usac.org/sl/tools/search-tools/tech-plan-
approver-locator.aspx
30
Technology Plan
Approver
Locator
31
Technology
plans
Technology plan best practices cont.
– Technology plan and all updated versions
are dated.
– Keep copies of all technology plan
documents (draft technology plan, final
technology plan and approval letter) in E-rate
binder.
32
Children’s Internet
Protection Act
(CIPA)
Documentation auditors may request
– Internet Acceptable Use Policy or Internet Safety
Policy.
• The Internet safety policy must address the following
issues:
– Access by minors to inappropriate matter on the Internet and
World Wide Web.
– The safety and security of minors when using electronic mail,
chat rooms, and other forms of direct electronic
communications.
– Unauthorized access including "hacking" and other unlawful
activities by minors online.
– Unauthorized disclosure, use, and dissemination of personal
information regarding minors.
– Measures designed to restrict minors' access to materials
harmful to minors.
33
CIPA
Documentation auditors may request cont.
– Record of a public hearing or notice.
• Per the FCC’s CIPA Order, there must be reasonable public
notice and at least one public hearing or meeting to discuss
the proposed Internet safety policy and technology
protection measure.
– Board meeting minutes, advertisements, etc.
– Evidence a technology protection measure was in
place during the audited Funding Year.
• Filter reports.
• Documentation showing the purchase or renewal of filter
equipment, software and/or licenses.
– Must cover the Funding Year(s) being audited.
34
CIPA
Common audit findings
– Applicant did not have an Acceptable Use Policy or
Internet Safety Policy.
• Possible recommendation of recovery of all funds disbursed
for Priority 2 services.
– Applicant’s Acceptable Use Policy or Internet Safety
Policy does not contain the required five elements.
• Possible recommendation of recovery of all funds disbursed
for Priority 2 services.
– Applicant did not conduct a public hearing or notice,
or could not produce documentation to show that
public hearing or notice occurred.
• Possible recommendation of recovery of all funds disbursed
for Priority 2 services.
35
CIPA
Best practices
– The five required elements are clearly laid out in the
Acceptable Use Policy or Internet Safety Policy.
– Documentation supporting a public hearing or notice
is maintained.
– On the first day of the Funding Year, and periodically
throughout the year, common filter reports (i.e. most
accessed websites or most blocked websites) are
run, printed and maintained.
– Documentation supporting the purchase or renewal
of filter equipment, software or licenses is
maintained.
– All documentation supporting compliance with CIPA
rules is maintained in E-rate binder.
36
Discount
Calculation
Documentation auditors may request
– Report of NSLP, Survey, Provision I, II, III numbers, etc. used
to complete Block 4 of Form(s) 471.
• Auditors will expect report data matches the data on Block
4.
– NSLP, Provision I, II, or III documentation submitted to the state
or USDA.
– If using NSLP numbers – evidence of verification per USDA
guidelines.
– Sample of applications or surveys collected.
• In July 2008, the FCC OIG and USDA reached an
agreement that will allow sharing of NSLP information.
37
USDA Agreement
38
Discount
Calculation
Common audit findings
– Applicant can not provide discount
calculation data used to complete Block 4 of
Form(s) 471. Auditors must be able to
perform recalculation of discount using other
available data.
• Possible recommendation of recovery of
disbursed funding equal to the difference between
the discount calculated by the applicant and the
re-calculated discount performed by the auditors.
39
Discount
Calculation
Common audit findings cont.
– Applicant uses ineligible discount calculation
method.
• Possible recommendation of full recovery of all disbursed
funds.
– Applicant uses NSLP applications as survey.
• Possible recommendation of recovery of disbursed funding
equal to the difference between the discount calculated by
the applicant using the survey method and the re-calculated
discount performed by the auditors using the actual NSLP
numbers.
40
Discount
Calculation
Common audit findings cont.
– Consortium lead does not obtain or maintain
discount calculation documentation of its
member schools or districts.
• Possible recommendation of recovery of all
disbursed funding or recovery of disbursed
funding equal to the difference between the
discount calculated by the applicant and the re-
calculated discount performed by the auditors
using the discount calculation data obtained from
the member schools or districts.
41
Discount
Calculation
Best practices
– Reports containing the data used to complete Block
4 of the Form(s) 471 are maintained. Libraries and
Consortium leads are expected to obtain and
maintain the discount calculation documentation
used to complete their application(s).
– Document the method used to calculate discount.
– All documentation is maintained in E-rate binder.
42
Competitive
Bidding
Documentation auditors may request
– State and local procurement regulations or policies.
• FCC Rules state applicants must follow all state and local
procurement regulations or policies in addition to the FCC
Rules.
– Request For Proposal (RFP), Request For Quote
(RFQ), Public Notice, Advertisement, Emails, etc.
– All vendor responses and bids received (winning and
losing).
• In the Fifth Report and Order, the FCC specifically stated
that all bids must be maintained.
43
Competitive
Bidding
Documentation auditors may request cont.
– Bid evaluation criteria, evaluation matrix, bid ratings.
– Memorandums, Board minutes, notes to file
pertaining to procurement or bid evaluation process.
– Signed and dated contracts, service agreements,
notice of award letters, etc.
– Contract amendments, addendums, extensions, etc.
– State master contracts.
– Vendor correspondence.
44
Competitive
Bidding
Common audit findings
– Documentation to support competitive bidding process was not
maintained.
• Possible recommendation of recovery of all funds
disbursed.
– Applicant did not consider all bids received.
• Possible recommendation of recovery of all funds
disbursed.
– Applicant enters into agreement with a service provider prior to
the 28-day waiting period after filing FCC Form(s) 470.
• Possible recommendation of recovery of all funds disbursed
for services associated with the agreement or contract prior
to the 29th day.
45
Competitive
Bidding
Best practices
– Applicant thoroughly documents the competitive
bidding process:
• Maintains copies of RFPs, RFQs, etc.
• Maintains copies of all bids received (winning and losing).
• If no bids received in response to 470 or RFP/RFQ,
applicant contacts service providers to solicit bids (this
process should be documented/memorialized in a memo or
email to the file)
• Maintains copies of all bid evaluations.
• Maintains copies of all correspondence with interested
vendors.
– Applicant develops bid evaluation matrix.
• Price is the primary factor.
• Only relevant factors considered.
46
Service Delivery
and Inventory
Management
Documentation auditors may request
– Fixed asset listing/Equipment inventory.
– Equipment packing slips.
– Documentation supporting receipt of
maintenance services received.
– Documentation supporting applicant receipt
of equipment installation (sign-off of work
completed).
47
Service Delivery
and Inventory
Management cont.
Common audit findings
– Funded equipment is not in use.
• Possible recommendation of recovery of funds disbursed
for equipment that is not in use.
– Funded equipment can not be located.
• Possible recommendation of recovery of funds disbursed
for equipment that can not be located.
– Ineligible equipment or services purchased with SLP
funding.
• Possible recommendation of recovery of funds disbursed
for ineligible equipment or services.
– Spare equipment is purchased with SLP funding.
• Possible recommendation of recovery of funds disbursed
for spare equipment.
48
Spare Equipment
49
Service Delivery
and Inventory
Management cont.
Common audit findings cont.
– Equipment is installed in ineligible locations.
• Possible recommendation of recovery of funds
disbursed for equipment installed in ineligible
locations.
– Applicant does not maintain documentation to show
that maintenance services are received.
• Possible recommendation of recovery of funds
disbursed for receipt of services that can not be
verified.
50
Service Delivery
and Inventory
Management
Best practices
– Applicants maintain equipment inventory with
enough detail to locate all equipment funded by SLP.
• Information to include, Funding Year, 471
number, FRN, Location, Serial number, Make &
Model, USAC invoice number, Install Date,
Customer Bill Information, Replacement Date,
etc.
– Sample inventory can be located at:
http://www.usac.org/_res/documents/sl/pdf/2007
_training/samples-checklist-inventory-list.pdf
51
Sample Equipment
Inventory
52
Service Delivery and
Inventory
Management
Best practices cont.
– Applicants verify work performed and
maintain documentation stating such.
• When equipment or wiring is installed, applicant
performs walk through and documents
acceptance of work performed.
• When maintenance is performed, applicant
maintains documentation showing date of
maintenance and detail of work performed.
– All documentation is maintained in E-rate
binder.
53
Effective Use
Documentation auditors may request
– Inventory of end user computers located in
Block 4 entities.
– Maintenance contract(s) for end user
computers.
– Professional development training
log/curriculum.
– Sign-in/attendance sheets from training
sessions.
– High level network diagram
54
Effective Use
Common audit findings
– Applicant does not possess, or has not
budgeted for the purchase of, a sufficient
number of end user computers.
• Possible recommendation of recovery of funds
disbursed for Internet Access, Internal
Connections and/or Basic Maintenance of Internal
Connections.
– In the Fifth Report and Order the FCC clarified that full
recovery of funds disbursed for all relevant funding
requests was warranted in cases where beneficiaries
do not have sufficient computer equipment.
55
Effective Use
Common audit findings cont.
– Applicant did not adequately train staff on the
use of funded technologies.
• Possible recommendation of recovery of funds
disbursed.
– In the Fifth Report and Order the FCC clarified that full
recovery of funds disbursed for all relevant funding
requests was warranted in cases where beneficiaries
do not sufficiently train staff on the use of the supported
technologies.
56
Effective Use
Common audit findings cont.
– Applicant did not have the necessary internal
connections to effectively use the supported
services.
• Possible recommendation of recovery of funds
disbursed for the portion of the funded Internet
Access that the auditors determined was not used
effectively.
– In the Fifth Report and Order the FCC clarified that full
recovery of funds disbursed for all relevant funding
requests was warranted in cases where beneficiaries
do not have sufficient internal connections.
57
Effective Use
Common audit findings cont.
– Applicant does not have adequate electrical
capacity to make use of the supported
services.
• Possible recommendation of recovery of funds
disbursed for the portion of funding the auditors
determined was subject to the inadequate
electrical capacity.
– In the Fifth Report and Order the FCC clarified that full
recovery of funds disbursed for all relevant funding
requests was warranted in cases where beneficiaries
do not have sufficient electrical capacity.
58
Effective
Use
Best practices
– Applicant documents inventory of end user
computers in use.
• This number does not have to be exact, however, it should
at least be a good faith estimate. Please note that while
performing inventories, auditors may make note of the
number of computers in classrooms and administrative
offices.
– Applicant maintains a list of the operating systems
and software in use on end user computers.
– Applicant maintains copies of staff training syllabus
and sign-in sheets.
– Applicant maintains copies of network diagrams.
– All documentation is maintained in E-rate binder.
59
Invoicing, Payments
and Reimbursements
Documentation auditors may request
– Customer bills – all pages, not just
summaries.
– Reconciliation worksheets.
– Proof of payment of non-discounted
amounts.
• Cancelled checks, front and back
• Bank statements
– Proof of reimbursement from vendor.
60
Invoicing, Payments
and Reimbursements
Common audit findings
– Ineligible items or services invoiced to USAC.
• Possible recommended recovery of funds disbursed for
ineligible items or services.
– Billing to the cap – applicant seeks reimbursement for full
committed amount, even though they were billed less.
• Possible recommended recovery of funds disbursed for
unsupported amounts.
– USAC is invoiced for equipment or services that were not
provided or not installed.
• Possible recommended recovery of funds disbursed for
equipment or services that were not provided or not
installed.
61
Invoicing, Payments
and Reimbursements
Common audit findings cont.
– Applicant has not paid its non-discounted
share of disbursed funds.
• Possible recommendation of recovery of funds
disbursed relative to the applicants non-
discounted share.
– Per the Fifth Report & Order, the FCC concluded that
90 days after delivery of service is a reasonable
timeframe within which bills should be paid.
62
Invoicing, Payments
and Reimbursements
Common audit findings cont.
– Applicant or service provider does not
maintain adequate records to support the
amount invoiced to USAC for equipment or
services.
• Possible recommendation of recovery of funds
disbursed for which adequate documentation
could not be located.
63
Invoicing, Payments
and Reimbursements
Best practices
– Detailed bills – the bills should provide
details pertaining to the equipment or
services delivered.
64
Bad Bill
Example
Bad Bill
Example
65
Good Bill
Example
Good Bill
Example
66
Invoicing, Payments
and Reimbursements
Best practices cont.
– All bills are maintained, not just summary
pages.
– Copies of cancelled checks, or other proof of
payment of non-discounted portion, is
obtained and maintained.
– All bills are paid in a timely manner - ≤ 90
days.
67
Invoicing, Payments
and Reimbursements
Best practices cont.
– Applicant performs a reconciliation or
verification of all bills received.
• Shows any ineligible items or services deducted
from amount invoiced to USAC.
• Shows applicant’s verification that equipment or
services were delivered or installed.
68
Reconciliation Example
Reconciliation
69
Invoicing, Payments
and Reimbursements
Best practices cont.
– Applicant maintains copies of reimbursement
check(s) from service provider(s).
– All documentation is maintained in E-rate
binder.
70
Miscellaneous
Other documentation auditors may request
• Copies of all forms and correspondence with
USAC.
– 470
– 471
– Item 21 Attachments
– 472
– 474
– 486
– 500
71
Miscellaneous
Other documentation auditors may request
cont.
– SPIN change documents
– Appeal documentation
– Service Substitution documentation
– Quarterly Disbursement Reports
– RNL(s), RAL(s), FCDL(s), 486 notification letter, 500
notification letter, BEAR notification letter, etc.
• While the documentation sent to PIA is provided to the
auditors, auditors prefer to view the original documentation.
72
Helpful
Information
• Code of Federal Regulations (C.F.R.)
– http://www.access.gpo.gov/nara/cfr/cfr-table-
search.html#page1
• Title 47
– Part 54
» 54.500 – 54.523
73
Helpful
Information
• Audit information on SLD’s website
– http://www.usac.org/sl/about/audits/default.aspx
74
Helpful
Information
• FCC Orders on USAC’s website
– http://www.usac.org/_res/documents/about/p
df/fcc-orders/all-fcc-usf-orders.pdf
75
Helpful
Information
• Audit inquiry mailbox
– auditinquiry@usac.org
76
Appeals
• Decisions of the SLD can be appealed to
the SLD or to the FCC
• Can be filed electronically or on paper
• Must be received or postmarked within 60
days of the SLD decision
• See Appeals Procedure in the Reference
area for specific guidance
• Requests for waivers of rules must be filed
with the FCC
77
Contact for
Assistance
Julia Benincosa
WV State E-rate Coordinator
Phone: 304-558-7880
Fax: 304-558-2584
Email: jbeninco@access.k12.wv.us
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